The Internal Revenue Service (IRS) on October 29, 2013 released Notice 2013-69 (the Notice) addressing foreign financial institution (FFI) agreements and related issues under the Foreign Account Tax Compliance Act (FATCA) and accompanying regulations. The Notice provides guidance to FFIs and branches of FFIs, including those treated as reporting financial institutions under an applicable Model 2 intergovernmental agreement (IGA). The Notice has been anticipated and provides guidance for stakeholders, but it also contains some surprising twists.

The Notice reiterates that certain entities or branches will enter into an FFI agreement with the IRS, while other types of entities must simply comply with its terms. The Notice also provides clarifications relating to certain Model 2 FFIs, branches, and the impact of non-compliant related entities. In addition, it introduces new concepts which the IRS will address in forthcoming regulations (e.g., the introduction of direct reporting non-financial foreign entities (NFFEs) and new coordinating principles between FATCA withholding and Section 3406 backup withholding).

Importantly, the Notice includes a draft version of the FFI agreement and describes an FFI’s general responsibilities. These responsibilities are substantially similar to the provisions set forth in the FATCA regulations but some new ones have been added. The Notice also provides miscellaneous guidance such as the application of a 90-day rule to the expiration of documentation, withholding requirements on preexisting accounts through certain due diligence time periods, and adjustments for underwithholding and overwithholding.

The Notice also indicates that the FFI agreement will be finalized by December 31, 2013, but does not request comments. As with all FATCA guidance, stakeholders should review how the new information affects their overall strategy and project plans for complying with FATCA.